A small but growing number of California community colleges have stopped participating in the federal loan program, cutting off these borrowing options for students out of fear that rising student loan default rates could lead to sanctions.
Some 16 colleges have stopped disbursing the loans, and at least one more school – Bakersfield College – is considering ending its participation in the program. That makes California home to more students without access to federal loans than any other state, according to data collected by the Institute for College Access and Success, an Oakland-based nonprofit.
College officials say they stopped participating in federal loans because they were worried that an increase in student loan defaults would jeopardize their ability to offer federal grants. Colleges where students default on federal loans at high rates for several years in a row stand to lose eligibility for federal grants under sanctions issued by the U.S. Department of Education.
But some advocacy groups and student loan experts say the colleges are exaggerating the risk of sanctions and are unnecessarily pushing students toward more expensive and riskier borrowing options. They say colleges should work to improve their default rates rather than cut off federal loans for students.
“The community colleges in California are at virtually no risk to losing access to Pell grants due to default rates,” said Debbie Cochrane, research director for the Institute for College Access and Success. “Colleges often overstate the risk of being sanctioned due to default rates because they don’t understand that there are protections to avoid those sanctions.”
Sandy Baum, senior fellow at the Graduate School of Education and Human Development at George Washington University, said students who can’t borrow federal loans will use their credit cards or go to private loan markets, where interest rates are higher and the consequences of default are more severe.
“If their default rates are too high, they should figure out why and do something about that, but depriving students of access to those loans is not the best solution,” said Baum, who is also an independent higher education policy analyst. (Read more.)